Is now a good time for retailers to open new stores?

Discussion
Rendering: Dollar General
Jun 09, 2021

Retailers have announced some ambitious expansion plans that take advantage of pandemic-related closures. Perhaps not by accident, among the biggest are from chains that have minimal e-commerce presence.

Three dollar store chains — Family Dollar, Dollar Tree and Dollar General — will make up about 45 percent of the anticipated 3,597 openings among larger chains in the U.S. this year, according to Coresight Research findings from early May, cited by CNN.

Dollar General will make up about a third of all openings. The favorable real estate climate will help it roll out pOpshelf, a concept aimed at higher-income, suburban customers. Todd Vasos, CEO, told analysts last December, “We’ve seen some real opportunity to grab some very good real estate.”

Other retailers with minimal or less than average online penetration landing on Coresight’s top-ten list of expanding chains included Five Below, Casey’s General Store, Aldi, Burlington Stores, Signet Jewelers and Tractor Supply.

Only one, Aerie, appears to have an online penetration higher than average. Its parent American Eagle Outfitter’s digital penetration increased to 40 percent of revenue in the first quarter.

About 60 Aerie and 30 Offline by Aerie athleisure openings are planned. American Eagle’s CEO Jay Schottenstein said on a March quarterly call that the aggressive openings take advantage of Aerie’s momentum in the marketplace and a “favorable real estate environment.”

Among others with a sizable online presence ramping up expansion, Warby Parker will open 35 locations this year after securing flexible lease terms and reconfirming the omnichannel value of stores over the last year, according to The Wall Street Journal.

Lululemon last week said it will open 45 to 55 net stores in 2021, up from prior guidance of 40 to 50. Calvin McDonald, CEO, said on Lululemon’s quarterly call, “We are committed to stores, and we are building more stores this year and seeing more and more great real estate opportunities become available in great areas in key cities around the globe.”

Other chains touting expansion plans this year include Athleta, Big Lots, Dick’s Sporting Goods, Fabletics, Nike, Old Navy, Sephora and TJX Cos.

DISCUSSION QUESTIONS: What conclusions should be drawn from the finding that chains adding the most physical stores in 2021 have a modest online presence? Has the pandemic and the related accelerated digital shift reduced the need for having physical stores for many chains?

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Braintrust
"It's time to go all-in on the store as the centerpiece of both the brand and the omnichannel experience."

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29 Comments on "Is now a good time for retailers to open new stores?"


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David Naumann
BrainTrust

Expanding their number of store locations or acquiring another chain is essentially the only way for stores, without an online presence, to achieve significant growth. With the closure of many stores during the pandemic, there are a lot of real estate bargains and those retail chains with store expansion strategies are accelerating their store opening plans.

Mark Ryski
BrainTrust

Stores matter and the pandemic has created new opportunities in locations that may have been unattainable prior to the pandemic — and at a cost and lease terms that are very attractive. I do not believe that the store openings are necessarily related to a digital shift or online vs. offline — retailers need to do both. The thoughtful retailers understand that the physical store is not just about facilitating a sales transaction any more, and so despite the acceleration to digital, the store will become even more important.

Zach Zalowitz
BrainTrust

Somewhat lengthy answer, but it depends really. Some of the brands you pointed out are bargain retailers operating on a “stack them high and let them fly” model. That’s a customer experience needing a store. If you want bargain hunting online, then go to a marketplace like eBay or Amazon. The other end of the spectrum looks to be athleisure, which for me personally, I want to go into a store to check out and try on. You could make an argument that as Lululemon becomes more a generalized brand and less a “boutique” (now more for the masses, I mean) that they were under-developed in terms of number of stores. Warby Parker is the confusing one. I like their “we’ll send you five, you send back what you don’t want” so it seems odd they would keep adding stores if they were doing well with e-commerce. Bonobos too, which to me has fallen off from the buzz a few years back.

Trevor Sumner
BrainTrust

Warby Parker sold more in store than online when they had 50 stores. They now have over 100. Cost of acquisition goes up with scale. Stores become more profitable especially with brand lift and halo effect.

Lee Peterson
BrainTrust

It’s always a good time to open a store — BUT — in this “digital-first” era you need to be more judicious than ever in terms of location and quantity of units. You also have to consider fulfillment in several ways rather than one, the possibility of a “showroom” feature and an overall amazing experience including store design, staff, checkout, etc. So all-in-all you’re good to go, just be really smart and really open to new ideas.

Rick Watson
BrainTrust

This reminds me of a quote about the best time to plant a tree.

There’s a popular Chinese proverb that says: “The best time to plant a tree was 20 years ago. The second best time is now.”

Location, traffic, product, overhead, sell-through – those can be the right and wrong decisions in any economy.

Ken Morris
BrainTrust

Except for Warby Parker, whose store strategy follows its online success, we won’t see many new stores except for dollar stores and discounters. The math doesn’t work any more. Traditional brick-and-mortar retailers are investing in tweaking their existing stores and distribution strategies to satisfy changing customer demands. The “if you build it, they will come” strategy needs to be completely reconsidered. I do see growth in the pure play retailers opening physical locations as they realize that physical presence has its advantages.

Suresh Chaganti
BrainTrust

The realization for online retailers is that when looked at holistically, physical retail makes sense to balance things out – cost of customer acquisition, growth, distribution and delivery.

But the new age retailers will do well by keeping in mind what caused the old model to fail – too much expansion too soon, not thinking holistically about the impact of the store lane on online sales, poor customer experience and assortments.

The advantage for online brands is that they can benefit from others’ experience. Hopefully they will only make new mistakes.

Gary Sankary
BrainTrust

This is a fantastic time to open new stores. The combination of a commercial real estate market that is highly favorable for lessors and pent up demand that consumers have to get out of the house and “go places” is really unprecedented in my opinion. I can’t think of a time when conditions were as favorable. I also think the window to take advantage of these conditions, especially in prime locations, will be limited.

I believe retailers with the tools to make fast decisions about sites and locations are going to be at a great advantage over their competitors.

I would add that I don’t think this is a strategy reserved for retailers with limited online presence. To the contrary, we know the most successful retailers are those who are able to leverage multiple channels. As we learn more about the “halo” effect and are able to track and analyze human movement patterns, the data tells us how critical locations are to successful retail.

Bob Amster
BrainTrust

What I expect to see happen is for retailers to open stores more judiciously. For example, opening in a dead mall simply because rents may be depressed is not judicious. Opening in a hot and growing city may be, and that is not guaranteed either. The demographics have to align with the product.

Cathy Hotka
BrainTrust

This is a great time to open new stores, with customers returning to physical retail and commercial real estate prices at a recent low. I can’t wait to head into that Popshelf store and see what’s inside.

Dave Bruno
BrainTrust

I am extremely bullish on the store right now. The omnichannel, connected store is absolutely our best weapon against the online giants, and I would be bullish whether real estate was cheap or not. It’s time to go all-in on the store as the centerpiece of both the brand and the omnichannel experience.

Liza Amlani
BrainTrust

The pandemic has reduced the need for having physical stores that don’t serve a purpose.

No doubt physical stores are important and as retailers expand their offline presence, they need to make sure that their stores serve a purpose, a community, and are delightful. Product assortments, brand ambassadors, and store ops are more important than ever. Data needs to drive these decisions and all channels must live together in a seamless way.

Having a physical store location for the sake of expanding reach/presence doesn’t make sense anymore – having your customer at the center of store expansion decisions across channels is more important than ever.

Customers are savvy and retailers should never forget this.

DeAnn Campbell
BrainTrust

For stores without an e-commerce presence, new stores are the only way to expand sales and customer reach, and current cheap rents only serve to make store expansion irresistible. And for retailers who do have strong e-commerce, including Lululemon and Aerie, they are seeing the seminal role that brick-and-mortar plays in boosting online sales and profit margins and expanding accordingly.

Lisa Goller
BrainTrust

This finding proves brick-and-mortar remains resilient, even as e-commerce booms. While many major retailers race to omnichannel expansion, dollar stores, discounters and off-price chains are doubling down on physical stores.

Consumers’ pent-up desire to get out and shop, plus affordable real estate make physical stores attractive. For instance, Dollar Tree is opening 3,000 stores, mostly in rural areas, to satisfy growing demand for value options.

Conversely, rapid digital transformation has inspired many retailers to streamline their store count and rethink their strategies. High overhead costs and poor ROI have led retailers (Disney, Gap, Victoria’s Secret) to close stores – sometimes dramatically (Godiva, Pet Valu).

Jennifer Bartashus
BrainTrust

What we are seeing is that it really comes down to the retail business model. Dollar stores are small, accessible stores and given their low price point are somewhat insulated from the e-commerce threat. That said, Dollar General, Dollar Tree and Five Below aren’t neglecting e-commerce either, but are focused on finding the right model. So the continued expansion of physical stores is no surprise. If you look at grocery, the bulk of new stores are coming from smaller-format stores and many are also in the discount space (Aldi, Lidl).

Peter Charness
BrainTrust

Real estate is there for the asking (construction costs on the other hand…). If the retailers are opening up “new” stores that are also designed to cost effectively satisfy alternative fulfillment methods as part of an acquire/remodel program now is about as good as it gets.

Steve Dennis
BrainTrust

It’s been a terrible time for retailers without a remarkable retail value proposition, a well harmonized shopping experience and value added benefits from their physical assets to open stores for many, many years. Conversely, even prior to the pandemic, many retailers across a wide spectrum of sectors successfully opened stores, ranging from dollar stores to off-price to brick-and-mortar dominant brands like Tractor Supply, Ulta, Lululemon, RH and many many more. What the pandemic demonstrated is a growing need to be remarkable, to see the customer as the channel and to respond to the increasingly hybrid nature of shopping and the resulting expanded role of stores in support of digitally-driven (and often store fulfilled) commerce.

Ananda Chakravarty
BrainTrust

No conclusions. The store chains that are opening the most new stores have been the same ones opening the most stores a few years back as well.

For them, online is not as important and for dollar stores with constantly changing inventory and low cost items with freight costs that match the product price, not profitable either.
The pandemic’s impact has been profound, but retailing is still retailing — there will be a slight bump in online, but the trend will shift back towards a majority of business happening in the store. Most retailers with physical stores have hunkered down (apparel, etc.) or have been taking in record year sales (grocery, etc.). Neither lends itself well to physical growth scenarios as those making money know there will be some reversion to the norm and it remains ambiguous.

David Mascitto
BrainTrust

Let’s not forget that the reason why real estate prices are low is because of the over-expansion of retail stores in the first place. So I would caution any retailer to expand without understanding the ROI for each additional location. That said, omnichannel is about the seamless integration of physical and digital. Just because an online presence exists or is enhanced, that doesn’t mean that brick and mortar should be minimized. It’s about striking the right balance of optimizing service to current customers, while being visible and accessible to new and potential customers, both online and in-person.

Georganne Bender
BrainTrust

Opening new stores right now is a smart move. Space is available, rent is affordable, and consumers are excited to go shopping again. It makes sense for online only retailers to test the waters and open physical locations as well. It’s a great way to expose new customers to your brand.

Matthew Pavich
BrainTrust

As others have pointed out, the answer varies based on retail vertical, e-commerce capabilities and the shoppers you cater to. Despite the hype surrounding omnichannel, it remains true that c-stores, dollar stores and pharmacies (and others) will always need to provide brick-and-mortar locations in the right areas to serve and expand their pool of customers. Regardless of retail vertical, the best retailers are investing in numerous channels and capabilities to exceed the expectations of their shoppers and grow share. Simply adding stores can grow sales in the short-term, but building smarter, more customer-centric shopping experiences across numerous channels is a better approach in the long run.

Craig Sundstrom
Guest

(New) stores always need to opened in newly developed areas or to replace ones that are obsolete or have been destroyed so people shouldn’t confuse this with NET store growth (or shrinkage, for those who see physical stores going away). How the future will play out is unclear; it seems, if not certain then at least likely, we’ll see a reduction in gross area devoted to retail display, but this could take several forms: fewer units, a similar number of units but each smaller, or some combination. And we’ll also see an increase in space devoted to BOPIS … so the total area may not change, but the percentage open to the public would.

Keverne Denahan
Guest

YES! It’s a GREAT time to open a brick and mortar location! I always advise to open during a downturn or special circumstances, like right now. As a retailer, you have some bargaining power for your lease. Get in there now. As long as you do some hardcore marketing, like you should be doing anyway, you’ll do great. People are missing the personal interaction that you can’t get with a digital purchase. That’s just one reason why customers will still come out; I have a list, but this is just a small comment section.

Lauren Goldberg
BrainTrust

All of the retailers expanding their footprint were strong prior to the pandemic and came out the other side with an advantage of getting great real estate deals. The ones who are closing doors were in a position of weakness. So the real estate rationalization going on right now is just accelerating trends that were in the marketplace prior to March 2020.

Kai Clarke
BrainTrust

Ignoring the tremendous opportunities that an increased online presence offers, and instead building more brick and mortar stores is a poor way to grow in today’s retail world. Furthermore, lower priced real estate (from other stores shuttering their business) should be taken with a grain of salt in terms of location, post pandemic pricing (which will reflect a different barometer for real estate in today’s retail environment) and ROI.